5. You are a fixed income trader at Goldman Sachs. You purchase $1,000,000 in face value of a bond with a price of 102.50 and accrued interest (per 100 face) of 0.75 from a customer. The bond has a modified duration of 3.75. Goldman owns $25,000,000 in face value of the most recently issued 5 year Treasury note on its balance sheet. It has a modified duration of 4.5, a price of 101.75 and accrued interest (per 100 face) of 0.30. Calculate the amount of face value of that Treasury security you need to sell to hedge the interest rate risk of the bond you just purchased. Round to the nearest thousand since bond trade in 1000 face value increments.
5. You are a fixed income trader at Goldman Sachs. You purchase $1,000,000 in face value of a bond with a price of 102.50 and accrued interest (per 100 face) of 0.75 from a customer. The bond has a modified duration of 3.75. Goldman owns $25,000,000 in face value of the most recently issued 5 year Treasury note on its balance sheet. It has a modified duration of 4.5, a price of 101.75 and accrued interest (per 100 face) of 0.30. Calculate the amount of face value of that Treasury security you need to sell to hedge the interest rate risk of the bond you just purchased. Round to the nearest thousand since bond trade in 1000 face value increments.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:5. You are a fixed income trader at Goldman Sachs. You purchase $1,000,000 in face value of a bond with a
price of 102.50 and accrued interest (per 100 face) of 0.75 from a customer. The bond has a modified
duration of 3.75. Goldman owns $25,000,000 in face value of the most recently issued 5 year Treasury note
on its balance sheet. It has a modified duration of 4.5, a price of 101.75 and accrued interest (per 100 face)
of 0.30. Calculate the amount of face value of that Treasury security you need to sell to hedge the interest
rate risk of the bond you just purchased. Round to the nearest thousand since bond trade in 1000 face
value increments.
$1,000,000
$843,000
$833,000
$1,186,000
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